British economic growth upgrade boosts new government

25th May 2010, Comments 0 comments

Britain's economy strengthened at a faster pace than previously thought in the first quarter of 2010, according to data published Tuesday which boosted the new coalition government, analysts said.

Gross domestic product (GDP) -- the value of all goods and services produced in the economy -- grew 0.3 percent in the three months to March compared with the prior quarter, the Office for National Statistics said in a statement.

That reading, which followed upward revisions to production data, was in line with market expectations and was modestly higher than last month's preliminary estimate of 0.2-percent expansion.

"Our new coalition government will welcome this news but growth remains extremely weak and tenuous," said Mark Bolsom, head of the UK trading desk at London-based currency group Travelex.

"With the worry of contagion from the financial crisis in the eurozone and swingeing public spending cuts already underway, economic recovery remains fragile."

The British economy clawed its way out of a fierce recession in late 2009 after a historic downturn that lasted for a record six successive quarters and was rooted in the global financial crisis.

Some market watchers fear that the country could tip headlong into a so-called "double dip" recession -- or second phase of the downturn -- amid fears about the impact of the British government's austerity measures.

British Prime Minister David Cameron's Conservative-Liberal Democrat government presented plans on Monday to axe 6.2 billion pounds from ministerial budgets as it seeks to trim a record public deficit.

More spending cuts are widely expected on June 22, when new Finance Minister George Osborne will unveil an emergency budget to address the dire state of public finances.

"The real crux of whether we are going to carry on growing depends on the extent to which the forthcoming austerity measures contract the economy," added Bolsom.

Hetal Mehta, senior economic advisor to the Ernst and Young ITEM Club, said he expected further growth in the second quarter but admitted that there were downside risks further afield.

"Looking ahead to the second quarter, we expect an acceleration in GDP based on the strength of recent survey data and the momentum that has built through to March," said Mehta.

"However, further ahead, downside risks to economic growth remain, not least the extent of the fiscal tightening we will see implemented in the emergency budget next month."

Many western nations like Britain spent huge amounts of money on banking bailouts and financial stimulus measures to avert meltdown during the global financial crisis -- and are now nursing large deficits as a result.

City Index analyst Joshua Raymond warned that the eurozone debt crisis could also impact on British economic growth.

"There remains growing concerns that recent headwinds both at home and abroad could stunt the UK recovery," said Raymond.

"Investors are likely to watch carefully both the details of the emergency budget in late June and the sovereign debt crisis within the eurozone -- which accounts for approximately 60 percent of UK exports -- to assess the potential impact on UK growth going forward."

British GDP meanwhile shrank by 0.2 percent in the first quarter, compared with the equivalent January-March period in 2009, according to the ONS.

© 2010 AFP

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